The Republic of Ireland's Economy Past, Present and Possible Future and Ryanair

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The Republic of Ireland’s Economy: Past, Present and Possible Future and Ryanair

Having battled through harsh poverty during the early nineties, Republic of Ireland had recently been referred to as a “Celtic Tiger”, an analogous term for the East Asian Tigers, the rapidly growing economies of Hong Kong, Taiwan, Singapore, and South Korea.

Ryanair’s website states that “Ryanair was Europe's original low fares airline and is still Europe's largest low fares carrier.”

In this text I will attempt to assess the past, current and future prospects of the Irish economy focusing on the key aggregates.  In addition, I will assess the vulnerability of Ryanair and its degree of exposure to macroeconomic shocks.  Furthermore, I seek to advise them on an appropriate strategy to manage uncontrollable external shocks.

In the past, Ireland has been on the receiving end of a lot of economic devastation.  Pre-independence, it was the recipient of two famines in the eighteenth and nineteenth century.  “Between 1845 and 1850, the population fell by about 2 million, 1 million died and 1 million emigrated.” (Munck, 1993, p.14)  Furthermore, after the Irish War of Independence in 1921, Ireland gained independence from Britain and later formed the Republic of Ireland.  However, it wasn’t all good news for the new state.  The economies of the Northern and Republic of Ireland were very weak.  However, the Republic was especially weak and had a lower standard of living as it no longer received financial subsidies from Britain.

The nation was hugely affected by harsh poverty and emigration until the 1960s, however, in the 1960s, under the leadership of Sean Lemass, the economy significantly expanded.

In 1973, Ireland joined the European Economic Community (EC) and was set to profit from its Common Agricultural Policy.  The state would benefit from this membership as it would guarantee high prices and secure access for Irish agricultural exports to the EC markets. (Munck, 1993, pp.109-110)  However, the 1970s was a difficult period for the Irish economy as there were two major oil price increases – one “towards the end of 1973 and the second beginning late in 1979”.  These “raised the price of oil about ten-fold, and the prices of other imported energy rose in tandem” which had a major effect on Ireland, as it imported over 70 per cent of its primary energy sources.  However, as energy is price inelastic, “the ratio of the value of energy imports to GDP rose from 2.6 per cent in 1973 to 7.2 per cent in 1974, and after being reduced to 5.5 per cent in 1978, rose again to 8.8 per cent in 1980 and 1981”.  In addition, the Irish government decided to increase Exchequer borrowing and as a result, the current budget deficit as a percentage of GNP increased from 0.4 per cent in 1973 to 6.9 per cent in 1975. (Kennedy et al., pp.75-76)

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Source: International Monetary Fund, World Economic Outlook Database, September 2006

Ireland’s economy developed dramatically during the 1990s, as shown by the increasing GDP in the diagram above, and was referred to as a “Celtic Tiger” - being an analogous term for the East Asian Tigers.  This development was hugely down to a high foreign direct investment.  As a member of the EC, foreign investors would see Ireland as a potential platform to launch their products into Europe.  Also, there was a lower corporate tax rate and improved economic management.  There was “tremendous reduction in public debt from ...

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